For several months now, amid ongoing interest rate hikes from the Federal Reserve, many savers have preferred short-term CDs. While not quite as flexible as variable-rate high-yield savings accounts, these certificates of deposit still allowed them to take advantage of rising interest rates. With a short-term CD, you can lock in a high rate, and then roll over your balance when the term is up in a few months, when rates are presumably higher.
But with a rate pause now in effect, and experts predicting we could be reaching a peak, it may be time to reconsider. Given the changing rate tide, now could be the time for forward-looking savers to lock in a longer-term CD.
“To maximize savings rates today, looking at longer duration CDs will allow one to lock-in higher rates for a longer term,” Gregory Crofton, CFP, founder of Adap Tax Financial recently told CBS News.
Lock in one of today’s best CD rates and start earning more money now.
Why you should open a long-term CD now
When rates are rising, short-term CDs make a lot of sense. They tend to offer better rates than high-yield savings accounts, and only require you to lock in your money for a short time period. When that term is up, you can easily move your cash to another account with a higher rate.
However, this thinking flips when rates are paused — or when you believe they could trend downward in the near future. In fact, following the most recent rate pause from the Fed, “savers should consider that savings rates might have peaked,” says Phil Rutterer, CFP, founder of Rutterer Planning. “Savers should have an eye on locking in attractive rates for their low volatility assets.”
It’s true that long-term CDs offer slightly lower rates than short-term CDs today — some top long-term CDs max out around 4.5%, while six-month to one-year CDs may be higher than 5%. But if rates go down, you could earn more in the long run.
Say you open a one-year CD at 5.20% APY today. In one year, the most you can get is 4.50%, then 4.00% a year later, then 3.50%. If you instead opened a five-year CD today earning 4.5% APY, you can lock in that rate for the entire five-year period. As long as you know you won’t need to access it beforehand, you may earn more over the entire time period and avoid the hassle of moving your money every time the shorter CD matures.
Explore today’s best CDs here and lock in a great rate today.
Best long-term CD rates
Here are a few long-term CDs from online banks offering the best yields today. Each of the following are FDIC-insured up to $250,000 limits.
Popular Direct 5-year CD: 4.53% APY
The five-year CD option from Popular Direct earns 4.53% APY. This account is for savers who already have a pretty high balance, as it requires a minimum deposit of $10,000. There are no monthly maintenance fees.
Bread Savings 3-year CD: 4.50% APY
You’ll get 4.50% APY with the three-year CD term from Bread Savings, with a $1,500 minimum balance and no monthly fees. While you won’t secure the rate for as long as others on this list, we chose the three-year CD from Bread because it offers a small rate boost for customers who renew their CDs upon maturity. This may help you secure a better rate when your term ends, even if interest rates have gone down by then.
Barclays Bank 5-year CD: 4.35% APY
With Barclays Bank, you can open a 60-month CD online and start earning 4.35% APY. There’s no minimum deposit to open your account and no monthly fees, but you must fund your account within 14 days of account opening.
Ally Bank 5-year CD: 4.10% APY
The Ally Bank five-year CD offers savers 4.10% APY. You won’t pay any monthly fees with this account, and there’s no minimum deposit required to open it.
Find more long-term CD options that may be best for you and compare today’s top rates here.
The bottom line
With interest rate hikes currently paused, some experts believe we could have already seen the peak rates that banks will offer on deposit products like CDs. If you have a savings balance that you’re looking to maximize — and you know you won’t need to access it for a few years — now could be the time to consider a longer-term CD. While the rates may be slightly lower than short-term options, you can lock in your APY at today’s high rates and enjoy the interest earnings for years to come, no matter how interest rates move. See how much you could be earning with today’s best CD rates here now.
